Central Valley almond growers win precedent-setting case
August 3, 2006
• Appeals court says growers hold liens when they turn produce over for processing
• Ruling first of its kind in California
Who has the better claim on a bankrupt processor’s money from sale of almonds – the growers or the processor’s lender?
The growers, says the California Fifth District Court of Appeal.
The ruling resolves a question of law that has not been addressed by a California appellate court -- whether California’s producer’s lien statute grants a producer rights to the proceeds from a processor’s sale of farm products that have priority over the rights of other claimants.
“We conclude that the provision in Food and Agricultural Code section 556381 that imposes a legal obligation on processors to use the proceeds of sales of farm products to pay producers necessarily creates a correlative right in producers to be paid from the proceeds generated by such sales,” says the opinion of the Fresno-based court. “The producer’s right to be paid from the proceeds meets the ordinary definition of ‘lien.’ As a lien granted to producers, the right to be paid from the proceeds constitutes a ‘producer’s lien’ for purposes of the priority provisions contained in section 55633. As a result, the growers’ claims to the proceeds from the processor’s sale of almonds are prior in dignity to the lender’s claim based on its security interest.”
The case stems from the bankruptcy of Central Valley Processing Inc. of Merced, an almond processor.
When the company went belly up, it owed $4 million to Central Valley Production Credit Association, and had secured the loan by pledging various assets ranging from the equipment to the almonds it had gotten from Central Valley growers.
Two groups of growers sued the lender, seeking compensation for their nuts. They alleged intentional interference with economic relations, conversion, unjust enrichment, and unfair business practices in violation of state law.
The appeals court agreed with the basic arguments of the growers that they were entitled “to recover the wrongfully diverted proceeds of the sale of their almonds.”